Deflation is the decline in the general price level of goods and services over time, leading to an increase in the purchasing power of money.
Deflation is the opposite of inflation and occurs when prices of goods and services consistently decrease. While lower prices may seem beneficial, deflation often signals weak demand and economic slowdown.
It is monitored by central banks like the Reserve Bank of India using indicators such as the Consumer Price Index (CPI).
Unlike inflation, deflation can lead to a deflationary spiral, where falling prices reduce demand further, worsening economic conditions.
"If the price of a product drops from ₹100 to ₹90, it indicates deflation of 10%, meaning money now has higher purchasing power."